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No win/No Fee vs No Agreement/No Fee

22 May 2013

Routledge Modise

Last November, while many of us were busy preparing for Christmas holidays, arguments were being made in the North Gauteng High Court in a case that in the personal injury circle was dubbed a "test case" to determine valid or invalidity of common law contingency fee agreements. The decision of De La Guerre v Ronald Bobroff & Partners and Others (22645/2011)[13 February 2013]has received significant media attention and rightly so. The question of whether common law contingency fee agreements were valid or not, has been brewing for a while, having regard to the recent unreported judgments in both the North and South Gauteng High Division. But what has made this judgment significant is that the claimant was suing his attorney for failing to comply with the Contingency Fee Agreement Act 66 of 1997 (Act) and by doing so, overcharged him for legal services rendered.

As a background, the Act was introduced after a report in November 1996 by the South African Law Commission on Speculative and Contingency Fees, mainly to provide access to justice for those who most likely were unable to prosecute their claims and pay for their own legal fees. It allowed for such claims under specified circumstances and subject to certain conditions. The Act came into operation on 23 April 1999 and provides for two forms of contingency fee agreements which attorneys and advocates may enter into with their clients. "The first, is no win, no fees agreement (s2(1)(a), and second is an agreement in terms of which the legal practitioner is entitled to fees higher than the normal fee if the client is successful (s2(1)(b). The second type of agreement is subject to limitations. Higher fees may not exceed the normal fees of the legal practitioner by more than 100% and in the case of a claim sounding in money this fee may not exceed 25% of the total amount awarded or any amount obtained by the client in consequence of the proceedings excluding costs (s2(2). The Act has detailed requirements for the agreement (s3), the procedure to be followed when a matter is settled (s4) and gives the client a right of review (s5)".

The facts of De La Guerre were that the applicant was injured in a motor vehicle accident and therefore instituted action against the Road Accident Fund (RAF) and was compensated for his damages. The applicant sought relief that the common law contingency fee agreement entered into between himself and his attorney (first respondent), in respect of fees payable by him to his attorney in pursuance of his claim against RAF, be declared invalid, void and of no force or effect. The applicant contended that the common law fee agreement was illegal, invalid and unenforceable, as it did not comply with the Act. In essence, the applicant was charged by his attorney 31.88% of the total compensation received from the RAF. Regrettably, the applicant's attorney did not file an answering affidavit to the proceedings. The second respondent, Law Society of the Northern Provinces, contended that common law fee agreement would lawfully co-exist with an agreement in terms of the Act. The third respondent, RAF, supported the view that a contingency fees agreement between the legal practitioner and his client was unlawful at common law.

In delivering his judgment and considering the facts of the matter, Judge Fabricius went on a judicial excursion and reviewed past decisions and Roman Dutch authorities on this issue. Judge Fabricius held that, "it is my view that the above mentioned decisions were correct in finding that, (i) at common law a contingency between an attorney and his client was unlawful, (ii) the Contingency Fees Act is exhaustive on its stated object, and any contingency fee agreement not in compliance with it is invalid." In cementing his judgment, Judge Fabricius held that there "is no doubt that the agreement entered into between the Applicant and First Respondent does not comply with the Contingency Fees Act for reasons set out in the founding affidavit and the agreement is accordingly invalid". The court ordered, among other things, Mr Bobroff to pay the difference between what the applicant had been charged in terms of the illegal agreement and what Mr Bobroff was entitled to charge him with interest.

On the same day that the De La Guerre case was heard, the South African Association of Personal Injury Lawyers (SAAPIL) brought a constitutional challenge to the provisions of the Act. The matter of SAAPIL v Minister of Justice and Constitutional Development & Road Accident Fund (intervening) (32894/2012)[13 February 2013]concerns the legality and enforceability of contingency fee agreements that are concluded without complying with the Act and the constitutionality of the Act itself. SAAPIL case was three fold, (i) that the Act does not override the common law and therefore contended that legal practitioners can conclude enforceable contingency fee agreements with their clients without complying with the requirements of the Act, provided they observe their ethical duties, (ii) in the event that the court concludes that the Act is exhaustive then the entire Act is unconstitutional on the grounds that it discriminates against lawyers and their clients in breach of section 9 of the Constitution, and (iii) section 2 and 4 of the Act are unconstitutional because they breach various rights contained in the Bill of Rights.

Judge Kathree-Setiloane in delivering her judgment and at the outset acknowledged that the meaning, effect and constitutionality of the Act have generated considerable controversy and debate in the legal profession since its enactment. In addressing the first constitutional challenge, Judge Kathree-Setiloane re-emphasised the principles enunciated in the De La Guerre judgment as it relate to invalidity of common law contingency fee agreements concluded between legal representatives and their clients. The court held that, as is demonstrated by these decisions, "the language, history and purpose of the Act all indicate that Parliament's intention was to cover the field and to provide that a contingency fee agreement would only be lawful where it complied with the Act. There is thus simply no basis for the contention that a contingency fee agreement can be valid even though it does not comply with the Act and accordingly, as held by this Court in De La Guerre, the Contingency Fees Act is exhaustive on its stated object, and any contingency fee agreement not in compliance with it invalid". In view of the above, the court decisively held that there was no merit in the first constitutional challenge advanced by SAAPIL.

Then the court went on to deal with the second constitutional challenge that the entire Act was unconstitutional. SAAPIL argued that legal practitioners and their clients are treated unfavourably relative to ordinary people who enter into champertous or speculative litigation agreements, and accordingly contended that the Act violates section 9 of the Constitution as well as the principle of legality under section 1(c) of the Constitution. In striking down this challenge, the court stated that the test to be applied and quoting the infamous case of Harken v Lanewas that whether the Act differentiates between people or categories of people and, if so, does the differentiation bear a rational connection to a legitimate governmental purpose and if it does, then there is no violation of section 9(1) and that's the end of the inquiry. However, if it does not, there is a violation of section 9(1) and the inquiry moves into the prohibition of discrimination under section 9(3) of the Constitution.

The court stated that the Act differentiates between legal practitioners and ordinary persons and section 9(1) of the Constitution requires that this differentiation be rational. The court listed four fundamental differences between legal practitioners who enter into contingency fee agreements on one hand, and lay persons who enter into champerty and maintenance agreements as that legal practitioners:

(i)            are responsible for conducting the litigation concerned,

(ii)           have specialised knowledge and training that equips them to conduct litigation,

(iii)         are bound by a range of ethical duties to their clients, and

(iv)         are bound by a range of ethical duties to the court.

To support her judgment, Judge Kathree-Setiloane dealt with the concerns or issues raised by the Law Commission in making this distinction between legal practitioners and lay persons and held that the act manifestly satisfies the rationality requirement and "there is clear rational connection in the differentiation between legal practitioners and their clients and other lay persons who may enter into champertous agreements, and a legitimate governmental purpose and therefore the purpose is to cater for the particular risks inherent in contingency fee agreements between legal practitioners and their clients and the Act does not, therefore, impermissibly infringe upon the guarantee of equality under section 9(1) of the Constitution".

To further cement her point, Judge Kathree Setiloane lashed out at the Law Society of the Northern Provinces and stated that "it has to date not put in place rules aimed at addressing the pertinent risks of overreaching by its members which may result from contingency fee agreements. It has also not promulgated a cap to the percentage of the capital that may be recovered by the attorneys. The only guideline of any note was the attorneys' remuneration had to be fair and in absence of proper guidelines, this was not determinable".

Then the court addressed the last constitutional challenge that the Act unfairly discriminates between legal practitioners and lay persons. Judge Kathree-Setiloane held that the differentiation in the Act between legal practitioners and their clients, on the one hand, and lay persons who may enter into champertous agreements, on the other, does not, in her view, constitute unfair discrimination.  She held "that the differentiation does not have the potential to impair the fundamental human dignity of legal practitioners and their clients as human beings or to affect them adversely in a comparably serious manner. The Act consequently does not violate the prohibition of unfair discrimination in section 9(3) of the Constitution". On the basis of reasons canvassed above by Judge Kathree-Setiloane, SAAPIL's constitutional challenge to the Act was dismissed in its entirety.

The two judgments cited above, have to a large extent finally addressed the debate and uncertainty surrounding the validity of the common law fee agreements and constitutionality of the Act, and for how long it remains to be seen. An IOL online publication dated 14 February 2013 clearly demonstrates that the two decisions have far reaching consequences for the law profession especially for the legal practitioners who specialise in personal injury matters. In the publication, one unnamed practitioner is quoted as saying the De La Guerre judgment could open floodgates for other people who felt they had been overreached by lawyers and that currently he had four cases that he intended to take to court pursuant to the judgment.

Not surprisingly Mr Bobroff expressed his intention to take the matters to the Constitutional Court for final determination. Regrettably these appeals to the highest court will result to unintended consequences. Having regard to the past media attention in respect of the cases, potential coverage of these appeals may result in more people being alive to the fact that they might have potential damages claims against their erstwhile attorneys for overreaching. Obviously this is neither Mr Bobroff and SAAPIL objective nor intended outcome in appealing these judgments.

The team

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